Clinton Global Initiative: Can Companies Be Good and Do Well?

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Adam Schultz / Clinton Global Initiative

TIME's managing editor Richard Stengel during Clinton Global Initiative in New York on Sept. 25, 2012.

When it comes to determining the best approaches to solving the world’s economic and social ills, rational people can, and do, disagree. But there’s one point on which something approaching unanimity has emerged: That private enterprises – companies – must be part of the solutions.

This near-consensus has evolved out of a spreading realization about the limits of government power, whether it’s the inability of debt-laden nations to spend their way out of the Great Recession, or of their central banks to QE their way out of it.

Add to that a growing sense that companies, especially multinationals that transcend political and geographic borders, have in many ways grown stronger during the economic pain of recent years — a phenomenon that was one of the recurring, if informal, themes of conversation among the cognoscenti gathered at the World Economic Forum in Davos earlier in the year.

So when many of those same big thinkers gathered at this week’s Clinton Global Initiative, the question on hand wasn’t whether companies need to help, but how to make that happen. TIME managing editor Richard Stengel, who moderated Tuesday’s panel on “Creating Value for Business and Society,” made plain the core challenge: That the profit motive is sometimes at odds with the broader interests of society at large.

Stengel’s three panelists, however, each put forward practical ideas for resolving this intractable-seeming contradiction. “Seeming” is the operative word for Lynn Stout, a professor at Cornell Law School, who argued that the corporate gospel of shareholder value – the idea that companies must be run primarily or even exclusively with the goal of maximizing stock prices – is a myth of very recent vintage. Not only is this “rule” not enshrined in law, she says; there’s not even any solid evidence that companies that more closely hue to it perform better than those that don’t. And she sees tons of evidence to suggest that it contributed greatly to our current economic and financial woes. After 25 years of focus on shareholder value, she says, “we all know it’s not working out well.”

(MORECGI: Designing—and Powering—a Better World)

But Stout’s an academic, right? What does she really know about doing business in the trenches of the real economy? Well, those who look down on the Ivory Tower might have been more persuaded by Jochen Zeitz, chairman of German sneaker maker PUMA and chief sustainability officer of the company’s parent, PPR. A one-time wunderkind, Zeitz was the youngest CEO of a German public company when he took over PUMA in 1993 and proceeded to grow the company’s share price 40-fold over the next 13 years. Yet Zeitz argues that CEOs should be judged not by traditional financial metrics, but rather by a more holistic set of measurements, including something he calls an Environmental Profit & Loss Account, which takes into account a company’s environmental impact up and down the supply chain.

No Pollyanna, however, Zeitz also argued passionately for a dose of realism. “Sustainability doesn’t come for free,” he insisted to an audience perhaps too inclined to buy into the win-win argument made by many environmentalists. “We can’t walk around saying sustainability will always be good for business. It can be good for the bottom line, but it happens in the long term. We have to think long term and balance the short-term pressures that we are under.”

Those short-term pressures, of course, are the demands of the capital markets, which register the cheers and jeers of investors at an ever-increasing pace, with ever more violent results. Will investors ever have the patience to wait until the long-term financial benefits of sustainable business practices trickle down to the bottom line? Stout earlier had noted that the average holding period for a stock in 1960 was eight years; today the average is four months. Can CEOs convincingly argue for patience when their entire constituency turns over three times a year?

Investment banking veteran Arif Naqvi, founder and CEO of Dubai-based Abraaj Holding, was on hand to argue in the affirmative. Naqvi runs what is perhaps the  Middle East’s most prominent private equity firm, making him a leader in a business that doesn’t have a reputation as the most patient class of investors. And yet Naqvi argued that in our increasingly interconnected world — one in which thriving communities become thriving markets — long-term sustainability and long-term profitability go hand-in-hand. Still, he acknowledged, convincing a broad range of investors “is going to be a long-term education process.”

(COVER STORY: Making the World A Better Place)

Meanwhile, a handful of practical suggestions emerged that have the potential to speed that process. Stout argued for two measures: imposing a stock transfer tax, which, by increasing the cost of buying and selling stocks, would presumably grow the average stock holding period and thus the time-horizon of the average investor; and building sustainability-related incentives into the compensation packages of corporate executives.

Zeitz, for his part, would like to see some version of an Environmental P&L statement on the packaging of everything we buy, ”so that consumers can look at it like they look at the labels for nutrition and calories,” he said. “We as businesses have to be transparent, and those that don’t want to be transparent need to be made transparent.”

6 comments
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jrmass
jrmass

Well, corporations are all about one thing: keeping the rich, rich and more and more rich, while the middle class is collapsed into the poor class. Just look at what has happened under certain government administrations in America. I am glad that now, President Obama, President Clinton, Hillary Clinton, Joe Biden, Leon Panetta, Janet Napoletano and the whole team at the White House is there to protect the middle class and the poor classes. People in these streams do want to work and make an honest living. They are not lazy and they are not freeloaders. When I'm in the classroom teaching, I use my powerful brain to impart my knowledge to adult learners so they can become an integral part of society and the economy and to contribute to the well-being of my nation (Canada) and our nation, so all could prosper.  Why, on the other hand, is there so much greed from the rich? I am a person who has relatives who are very wealthy (none who ever gave me a dime!) and others who are middle class, and I tell you that the rich ones don't give a damn and never gave a damn about the poorer relatives. They just wanted to watch us 'rot' in poverty years ago when we were struggling. So my parents educated all of their four children with university degrees and now we are taking care of ourselves. And we didn't need crummy rich relatives to give us any handouts, not now, not ever. -June R Massoud, Computer Engineer, Teacher and Technical Writer - from Montreal, Canada

Mary Jane Cooper
Mary Jane Cooper

I agree with you totally jrmass.  I think most people want a good education, a good job paying decent wages and good health or affordable healthcare.  I believe everyone deserves it.  For certain pundits to call President Obama lazy is a huge insult.  He cares about the middle class and those that are poverty stricken and that

is what really gets under the skin of the wealthy in this country.  It's a sad sad shame.

Talendria
Talendria

The stock transfer tax is a great idea.  The stock market was intended for investment, not arbitrage, and we need some kind of financial disincentive to discourage people from exploiting small fluctuations.

smjhunt
smjhunt

If you define good as doing something that adds value to the economy and jobs, of course they can. However, and it's a big however.  They can only do if everyone is held to this same standard.  Otherwise, those who don't play by the rules will have a competitive advantage.   The only way I see that  you could create and maintain a level playing field is by the government requiring it and enforcing it through regulation and in this global economy, you would need all the governments involved to agree and enforce the rules. If say, the U.S. were to reward companies deemed as adding values and jobs and potentially punish those who simply game the system, those people could just move their headquarters to another country.

Ironically, the biggest impediment to companies doing good is not some wealth obsessed JP Morgan types sitting as CEOs or board members but rather the investing public. A large portion of the companies in the US or publicly traded. Investors however are solely focused on profits. In fact they are solely focused in increasing profits as if everything today was a growth stock. A company that struck a good balance and made a decent profit would see its stock pummeled because it has stopped increasing profits. It wouldn't matter if it made a billion dollars in profit. The important thing to the investor is that it will make a more money each quarter forever. Once it is perceived to have stopped doing this, it will be dropped. If the drop is severe enough the CEO will be removed and replaced with a more aggressive one (i.e. one who cares less about the company doing good). So there's a built in serious incentive for a CEO to maximize profit and to build it more each quarter. Returning a decent profit while being a good corporate citizen is doable with some effort but I think it's beyond most every CEO to continually increase the profit, regardless of the surrounding economy while still doing good.

Talendria
Talendria

You're right.  In recent years, consumers have become obsessed with short-term gains and immediate gratification instead focusing on the long haul.  I think as a species we've lost our taste for discipline and restraint.

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